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Taking fees but not performing: elements of fraud include intent

The mortgage market instability that began to surface in 2007 became a full-scale crisis the following year. The fallout from it played a role in triggering the Great Recession and left millions of people behind on their mortgage payments.

Federal programs intended to help homeowners avoid foreclosure have been limited in their effectiveness at doing that. But homeowners continue to seek other ways to stay in their homes. And one of those is by getting a mortgage loan audit.

Such audits look for irregularities in the procedures used by a lender that, once identified, could be used by a homeowner to prevent foreclosure. This is often done by obtaining a mortgage modification in the homeowner's favor.

In a recent St. Louis case, however, prosecutors obtained a fraud conviction against the owner of a company that performed mortgage audits and offered assistance with mortgage modifications.

Last week, a judge sentenced the audit company owner to a 15-month prison term.

The audit company was founded in St. Louis. After moving to the Kansas City area, it eventually merged with another company in 2010.

Prosecutors contended that the 31-year-old man who founded the company in St. Louis took fees from clients for loan audits that he did not actually perform. Authorities said the man also failed to purchase the necessary software to conduct the mortgage audits.

Besides prison time, the man's sentence includes a requirement to make restitution of nearly $100,000 to clients who paid for the audits that weren't performed.

It should be noted, however, that merely failing to perform an audit is not, of itself, evidence of fraud. That is because fraud requires an intention to defraud. 

Source: CBS St. Louis, "Founder of St. Louis Loan Company Sentenced For Fraud," Oct. 17, 2013

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